Pros and Cons of Common Passive Real Estate Investing Strategies

Passive investing strategies are called "passive" because after the initial vetting there is virtually no work to be done. Others are managing your real estate investment(s) for you.  

These opportunities are perfect for people who are looking to start investing in real estate but don't have enough time or enough money. Fortunately, the real estate investing world is so diverse that there is an opportunity for any budget and any lifestyle.

However, just like all investments, they may have risks. That's why it's very important that you know all your options and their implications, so you can make a good move. 

Here, there are the Pros and Cons of the most common passive real estate investing strategies: 

Online Real Estate Companies

These online real estate companies (e.g. Fundrise, Diversyfund, Realty Mogul) let average — read: not wealthy — investors buy into private commercial and residential investments by pooling their assets through an online investment platform. These online real estate companies have minimum investments from as low as $100.

Pros: 

1. 1. Available to non-accredited investors.
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3. 2. Easily accessible online platforms.
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5. 3. Completely passive investment.

Cons:

1. 1. It’s relatively illiquid (your money will be in the fund for several years, though AHP Fund does offer “best efforts” liquidity)
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5. 2. No special tax benefits.
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7. 3. No management control.
   

Turnkey Investments

Turnkey real estate investing is a loosely defined investment strategy in which a 3rd-party usually buys, rehabs, and manages the property for an investor who is usually situated a long-distance away.  Exa., You live in San Francisco, an expensive market, and you’d like to own cash-flowing rental property at a much more affordable price.  So you contact a turnkey company who will buy the property, rehab the property, install a tenant, manage a property located in Jackson, MS and then sell you the property (with tenant and property management in place) for $75,000.  You finance the property and put 25% down ($18,750).  Your profit after financing and expenses is $150/month, which gives you a 9.6% return on investment for your passive investment.

Pros:

2. 1. highly simplified process for purchasing and owning investment real estate.
3. Allows investors inexpensive and/or less profitable markets to invest “where the numbers make sense.”
6. 2. Allows investors to leverage the time and expertise of the turnkey investment company to avoid costly mistakes.
9. 3. As owners of the property, the investor gets full tax benefits.

Cons: 

1. 1. You have to be able to purchase the property in cash and/or finance the property.
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3. 2. Turnkey properties are sold at a premium over similar properties to compensate the turnkey provider for the work of finding, rehabbing, tenanting, and managing the property. 
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6. 3. The property will work only as well as the turnkey providers (ie., your team), so you need to do proper due diligence and/or be ready to fly to your property to handle any problems.

Syndications 

A real estate syndication is essentially crowd-funded real estate. Investing in a real estate syndication is investing in a real estate enterprise as a passive investor alongside multiple other investors.  Exa. You want to own multi-family apartments, but you don’t have the money, experience, or team to do so by yourself.  With a $50,000 investment, you are able to become a part-owner of a 250-unit apartment complex in Atlanta, Georgia.  You don’t have any management duties on this investment.  You just pay in and wait for your money to come back with friends. The plan is to take this already cash-flowing apartment building that has “value-add” potential and steadily increase the net operating income.  The investment gives you an average of 10% of cash flow per year.  When the property is sold in 5 years, you are able to get your initial investment back plus your share of the created equity.  At the end of the 5 years with the cash flow and equity, you have a cumulative return on investment of 19% per year.   

Pros: 

1. 1. Benefits of ownership (including tax benefits), but without any management responsibility.
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4. 2. Allows you to get into a much larger property (with economies of scale and generally much higher quality property management) than you could have by yourself.
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7. 3. Spreads the risk.
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10. 4. Perfect for those who want all the benefits of real estate investing, but has little time for finding and managing a property.

Cons:

1. 1. No management authority
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4. 2. During the time of the syndication, your money is not liquid (though you often receive cash-flow)
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7. 3. A typical minimum investment is $50,000. You must be an accredited and/or sophisticated investor.
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10. 4. You often have to have an existing pre-existing relationship with a syndicator.  

I am a real estate investor and syndicator with over 15 years of real estate investing experience in multi-family, single-family rentals, industrial, mobile home and RV parks, flipping, commercial, vacation rentals, and ground-up development. Together with my husband and investors, I own over 1300 rental units across 7 states. 

If you want to know more passive real estate investing strategies, click this link and get a free digital guide showing you 12 strategies that will get you to start investing in real estate regardless of your budget.

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About Monick halm

Monick Halm, founder of Real Estate Investor Goddesses, is an educator and advocate for female real estate investors, Her mission is to help 1 million women achieve financial freedom through real estate investing. To find out more about Monick and connect with her, go to www.reigoddesses.com.